Oil focuses on Fed’s meaning of “taper”

The Tale of the Taper

Can you taper up? Oil Prices rebounded after a big fall in part because of a misunderstanding. Apparently you can taper up as well as taper down in what I guess you can call the tale of the taper. That seemed to be the message from at least two Fed official's that tried to calm the markets that feared that the term tapering meant that the Fed was ready to reduce bond buying like a tapering worm. James Williams of the San Francisco Federal Reserve said that tapering was not on autopilot and they could reverse direction and I guess taper back up after tapering down. St Louis Fed President James Bullard also tried to assure the market that tapering was not going to happen right away. He said he wanted see inflation first. So unless he is looking at gas prices in the Midwest or food or health care he probably is not going to see it.

What we did see was an improvement in housing and employment. Fox Business Network Reporter Matthew Rocco writes "The rapid increase in U.S. shale oil production, which is expected to give the nation energy self-sufficiency by the end of this decade, is having a far-ranging impact that has spread to other industries. Oil production in the U.S. has soared amid successful shale plays in North Dakota, Texas and elsewhere. Earlier this year, the Energy Information Administration said production would soon exceed oil imports for the first time since February 1995. A report Tuesday from Standard & Poor's said the shale energy boom is an increasingly central part of economic growth, coupled with the housing recovery. The report noted that Bentek Energy, another unit of McGraw Hill Financial, projects U.S. energy independence — when exports are greater than imports — by 2017. S&P Managing Director David Wood said in an interview that energy self-sufficiency would be a direct result of the increase in oil and gas produced domestically from shale plays. But he explained that the ability to transport oil from shale plays to refineries in the Gulf Coast will be a key factor in seeing exports rise, in addition to the possibility of negative impacts from environmental-related incidents."Infrastructure is still underdeveloped to get oil and natural gas to Gulf refineries for export," Wood said, adding that Transocean's Keystone XL pipeline, if completed, could facilitate the process. In the meantime, oil exploration and advancements in drilling techniques have opened up reserves to give new life to the industry.”

We predicted that the EIA natural gas report would give us a boost and it did. Working gas in storage was 2,053 Bcf as of Friday, May 17, 2013, according to EIA estimates. This represents a net increase of 89 Bcf from the previous week. Stocks were 680 Bcf less than last year at this time and 84 Bcf below the 5-year average of 2,137 Bcf. In the East Region, stocks were 111 Bcf below the 5-year average following net injections of 46 Bcf. Stocks in the Producing Region were 22 Bcf below the 5-year average of 850 Bcf after a net injection of 32 Bcf. Stocks in the West Region were 49 Bcf above the 5-year average after a net addition of 11 Bcf. At 2,053 Bcf, total working gas is within the 5-year historical range.

Of course back in January we called for a long term bottom on natural gas and now since the approval of the U.S. export terminal natural gas has gone up with renewed vigor. Of course you might understand the rising pressure on the U.S. to expand gas exports when you read a story out of the FT and something that we talked about at the time. The FT reported that "Britain came within six hours of running out of natural gas in March, according to a senior energy official, highlighting the risk of supply shortages amid declining domestic production and a growing reliance on imports."We really only had six hours' worth of gas left in storage as a buffer," said Rob Hastings, director of energy and infrastructure at the Crown Estate, the property portfolio managed on behalf of the Queen. "If it had run any lower it would have meant . . . interruptions to supply." Oil looks weak. RBOB seemed to get a bounce on good economic data and holiday demand hopes. Still despite the rebound we should start to continue to move lower across the petroleum complex. The push in U.S. planting of corn has subsided reducing Ultra Low Sulfur demand. Nat gas on the other hand with no shoulder season and rising demand expectations should continue its upward trek.

About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

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